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Power Lunch

News/Business. Sue Herera, Tyler Mathisen. Today's news on the economy, markets, real estate, media and technology. New. (CC)

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01:01:00

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U.s. 15, China 10, S&p 8, Us 8, Washington 7, Jim 6, Europe 4, Tom 4, Gary 3, Barbara 3, Bob 2, Scottrade 2, United States 2, Chicago 2, Asia 2, Tyler 2, Bernanke 2, Jp Morgan 's 1, Aflac 1, The S&p 1,
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  CNBC    Power Lunch    News/Business. Sue Herera, Tyler Mathisen. Today's news on  
   the economy, markets, real estate, media and technology....  

    June 20, 2013
    1:00 - 2:00pm EDT  

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joe? >> steph? >> mft bank. >> simon baker. >> cme group. >> that does it for us. don't forget to catch more "fast money" 5:00 p.m. tonight. follow me on twitter, scott walker. a big market day. it is the power summit. i can't wait for it, and it starts right now. time is money, and time never stops. money never sleeps. almost six months into 2013, the s&p is up. what should we expect for the next six months? today a special power summit with five of wall street's top strategists and chief investment officers. >> hi, everybody, and welcome. i'm sue herera along with my partner. >> sue, good to see you. this is, i think, the perfect day to help you make smart moves with your money right now for
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the second half of this year. >> we have five of the men and women who make the calls for wall street's biggest firms. these are the people who come up with the price targets, among other things, and they're here to tell us where they stand on stocks. >> her target for years on the s&p is 1730. jp morgan's thomas lee has a target of 1715 on the s&p. david of deutsch bank, 1625, roughly where we are now. jim mcdonald, northern trust, 1550 to 1800, and we'll find out why, and gary fay, 1650 to 1700. >> it's the second biggest down day in a row after yesterday's fed announcement. we'll put it all in perspective for you and talk about the next six months. we did outline your target for the s&p. given the volatility we see in the market not only today but recently, what's going to get us to that target?
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>> we think there are three things that will help equities move further ahead as we moo through this year. the first thing is earnings revisions. we've seen earnings revisions in the s&p move to the positive side. that's a big change for us. the second is investor positioning. investors have been very skeptical of the rise we've seen. it's only given rise to that skepticism, and the third thing is we think the data will be a little bit better as we move to the second half of this year. >> jim, let me ask you to help get my head around what i'm waupg he watching here the last couple days. yesterday the fed chairman says he's going to do exactly what he's been hinting he's going to do all along for months, and that is pull some of the monetary stimulus out of the equation if the economy is getting better. and he says, the economy is
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showing signs of getting better and we think by year end and into 2014, it's going to be better still. so we anticipate being able to take away some of the scaffolding around this building and let it see whether it can stand on its own two feet. why is that bad news? why are commodities, stocks and bonds selling off on what, really, you could interpret as good news? >> i think it really isn't bad news, and i do think that much of what chairman bernanke said yesterday was in line with market expectations, but it clearly wasn't in line with investor positioning. so people are selling because they had a different expectation of where the fed was going to be. we now have a situation where there is some concern coming out of the markets, are the feds going to move too soon? i think that's unlikely. inflation continues to fall, so we're in a disinflationary environment. i think the feds' investments on employment are probably accurate, so i think as we look at the second half of the year,
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positions are going to get squared in the investment community, the growth is going to come in okay and the market is probably going to regain its footing. >> but tom, it seems to me the market is misinterpreting tapering for tightening, which are two completely different things. >> that's right. i think in some ways i think kerry trades, or trades related to low interest rates, were super crowded. i think in some ways we're seeing some of that unwind, and i think today operations expectations really magnifying some of these moves. but you're absolutely right, the feds' movements are not the independent variable. really the independent variable is the pace recovery of the economy, and i think if tightening really is having negative effects on the economy, we're going to basically see the ability of the fed to go the other direction. >> david, do you agree or no? >> yeah, i do agree. i think what's going on, if we take a step back, is that markets are going through a normalization process. they're becoming more aware that there is light at the end of the tunnel when it comes to less
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liquidity, so interest rates are beginning their upward move. i think that will slow down for the summer, but they're beginning their upward move and investors are trying to figure out how that will effect currencies, economies. that's important to the outlook. and importantly, whether investors are willing on maintain calm throughout this investment process. >> gary, why did sentiment change so abruptly over the past five or six weeks? five weenks ago, the market was hitting record high after record high. and while there was little bits of news whether out of china or investors in the united states, it was party on, baby. but now if the signals are anything, they take it the other way and they run and hide like today's numbers out of china on the chinese purchasing managers, for goodness sakes? and that's why we're down 200 points? couple that with the fed. why did sentiment change so abruptly. >> tyler, i think a lot of
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investors were overlooking good things happening in the economy and were just assuming markets were going up because the feds were providing liquidity. now that the feds are talking about maybe tapering that off, they don't have enough confidence in the economy to feel good about what chairman bernanke is saying about the economy. he is projecting the economy will get better, and we would agree. but now i think people are worried about the removal of the monetary stimulus, and they just don't have confidence yet in the economy. >> remember when we were hitting those new highs on almost a daily basis? everybody said, we need that pull-back to give people who haven't gotten gu tinto the mara chance to get into the mark. >> there's two things. there's sentiment on the fixed income markets. the fixed income markets have been overshooting. we have fixed income type of index and it has reached almost panic level at this point.
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generally when we see these panic levels in the fixed income market, three to six months later, we tend to see better returns with fixed income, so the bottom market is overdoing it in terms of the upside on yields. it doesn't mean they can't go a little bit further from here, but it feels like it's getting somewhat overdone at this point. >> jim, if you're not the rangeer, you're the big ranger here, so why do you have a range from 15-something to 17-something on the dow at this point? >> you can rest assured it was very intentional, and it's meant to communicate the fact that equities are volatile. we actually did a study over the last 90 years, how many times has the market delivered a return, between 8 and 14% which is where forecasts typically are 6% of the time. so equities are volatile. people need to understand when they're building their portfolios the intentions of the assets they're buying. you're buying bonds so you can have assets of liquidity, you're
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building stocks for long-term longevity of your portfolio. >> so right now, today, as we get ready to start the second half of the year here in about a week's time, where do you really think the s&p will end at year end? closer to 18 or closer to 15? >> i think the upper half of that range is more likely here as the investment community again digests the view we've heard from the fed, gets to a position where they start to see economic data continue to come in in an acceptable manner, and stocks are reasonably priced relative to history. i think that will lead to an upward trend in the market. >> all righty. we're going to continue the conversation, and we want you to join the conversation and participate effectively. if you have a question for one of wall street's best, we've got them ask we'd like to hear from you. submit your questions to power lunch. it's your chance to talk to wall street's finest.
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>> operators are standing by. >> indeed, they are. we have a lot to talk about still. we mentioned the commodities a few minutes ago. >> next on our list, though, we'll turn to the financials and talk about what might be ahead for the banking sector on this special power lunch power summit. we'll return in two minutes. [ male announcer ] my client gloria has a lot going on in her life. wife, mother, marathoner. but one day it's just gonna be james and her. so as their financial advisor, i'm helping them look at their complete financial picture -- even the money they've invested elsewhere -- to create a plan that can help weather all kinds of markets. because that's how they're getting ready, for all the things they want to do. [ female announcer ] when people talk, great things can happen. so start a conversation with an advisor who's fully invested in you. wells fargo advisors. together we'll go far.
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we just sort of found out why jim has that large target range and we'll probe it a little more throughout this special hour called the power summit here on "power lunch." we're going to turn to the financials. our kayla covers them for us, and kayla, what do you want to know? >> financials have been among the market leaders this year. more confidence in the economy means more loans, more business deals. jp morgan might have stolen the headlines, but the surprise is the cme groups, and that's because it's where derivatives clear. volume is up 71% year to date as their trying to hedge against the fed. my question is, for the banks, a rise in rates will help more than hurt them, but which will it do more than the other? >> will it hurt or help more? >> i think rising rates do help a little bit for financials. they can get a little bit more spread on their products, but what's important, really, is the loan demand in the economy.
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and i think if you look at loan demand right now, it's still relatively modest. consumers are feeling a little bitter about things, but there are still people deleveraging and pay off their debts rather than take on new debts, so we don't think the rise in rates will necessarily hurt loans a lot, but we need to sustain the economy to get the regular buyer back in the market. >> does it not also depend, david, on the trajectory of the rate increase? we're at 2.4% today, but that's a relatively large move from where we were a couple weeks ago. >> i think the focus on banks from an earning perspective should be long growth. it puts some pressure on their profitability. higher rates should help them out, but they're still suffering from that interest margin compression as existing loans and securities roll on over to another yield. i'm bullish on financial banks, but it's not because of strong earnings growth prospects, but
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it's because we think their dividend payouts are still depressed. >> are you bullish on certain kinds of financials than you are on banks per se? in other words, would you be more bullish on asset managers or insurance companies or the trust banks as opposed to the multiline banks? >> so capital markets and asset managers are the financial institutions we're most positive on right now. we got to make sure we end this quarter without anybody dropping the ball and handling the volatility in rates. >> the tea rose, the franklins. >> those and the big diversified financial banks i like as well. but the point is when you look across the financial sector, dividends are still depressed and dividends should rise relative to the earnings in the next couple years and boost the p er pmes. >> you said the relevant standards still remain
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relatively constrained and tight, so how do they continue to grow if that's the case? >> i think that's why financials will act as a cyclical stock. sometimes they don't do what other cyclical stocks do, but i think a rise in environment is actually going to motivate loan demand. people say, look, prices are going to go up, i should buy now. and i think lending is starting to ease as well in the idea that collateral has a lot of value, and in a rising environment, banks are more willing to lend. valuations are still near 30-year lows and it's a non-consensus way to be buying stocks. >> barbara, i see you nodding there, jim, you want to jump in. you guys all work for banks and you work for big banks. is the banking business ever going to be the sweet growth business that it was in the mid and early part of this century, of the 2000s, or is that day behind us? >> i think the history of the stock market, there are
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decade-long cycles and last decade was the financials. they are going to be in an adjustment period, i think, for many years to come. if you look at the short-term environment, loan growth was only at 1.3% year to date, and we think loans have peaked here year to year, so if rates come down, that's not going to help the financials. >> we also put a cyclical tilt into our portfolios earlier this year. financials are also benefiting greatly in the recovery from the real estate residential market as well. >> all five of you, hands up if you say buy financials right here. and a hand down. four out of five say buy financials here. you are cautious on it. >> does that mean you're also cautious on housing, then, though? that's where a lot of the loan growth comes from. >> it does not. we think housing has a
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multi-year tailwind behind it because we have interest rates so low, but if you look today, a third of the purchases are all cash. that's not going to keep going forever, but housing by itself isn't going to be enough to drive the big banks. >> folks, we'll be back with more on our power summit in just a moment. we'll turn to our transports after the break. key part to this year's run-up. we heard yesterday from fedex and there is lots of other stories in the transport sector. we'll be back in two minutes. ine and sophistication. but to us, less isn't more. more is more. abundant space, available leading-edge technology, impeccable design, and more than you've come to expect from a luxury vehicle. the lexus es350 and epa-estimated 40 mpg es hybrid. this is the pursuit of perfection. and epa-estimated 40 mpg es hybrid. (announcer) at scottrade, our clto make their money do more.re
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welcome back to the power summit. you know -- that's my favorite indicator. i love the transports. >> i love those transports. >> we are going to turn to the transportation sector right now. as you know, phil labeau covers autos and airlines. >> it's been a heck of a run, particularly the large airlines. the airline index is up 28% year to date, and some of the major airlines, including united, are up by an even greater percentage. my question is, what happens with the transports over the next six months, particularly if jet fuel starts to move higher? >> thank you, fill lebeau. transports have been on fire, certainly. today not so much. but the next six months for transports will be key depending
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on where jet fuel and oil prices go. but, gary, what's your opinion of the transportation sector? because if you're a wonky person like me and you follow the dow theory, for the dow to go higher, you need the transports to confirm that. do you see that? >> we did see transports start the year off very well, which, you know, is a positive sign for the market overall. we're not anticipating a surge in fuel costs for the airlines or anything like that that would cause them problems, but they have run a long way right now, and it might be one of these things where they're going to go through a consolidation phase or whatnot. we're pretty much even weighted on some of the consumer staples, so we liked the airlines, but we don't overweight them right now. >> okay. all right. how many of you really think that the transportation index is kind of a reflection of the global economy? i mean, caterpillars are getting hit today because they're saying their overseas sales are not what they would like it to be. not the first time we've heard that. tom, is it a reflection of the
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overall global economy, or have the structure of the transports changed so much that it's more domestic based? >> i think transports which actually historically have been a really good indicator, and especially since sammys are out performing year to date, i think you have an argument for persistence in an upward move in the market. i think transports are being measured as a move for the industrial economy. the airline industry really has gone through many years of restructuring. i think it's finally in a position to be profitable over cycles. rails and other elements of the transports are also domestically oriented. i think it's showing you there is a lot of relative growth in the u.s., and the other industrials are not doing well because there's questions about global growth. >> you got planes, you got trucks, you got trains in this sector. let's talk about fedex a little bit. they had numbers out yesterday that were better than expected even though their profit was way down. but fred smith was cautious, particularly about what he saw in asia as customers rolled to
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less pricey ways to have packages delivered. do you think that's a canary in the coal mine in any way? who wants to jump? >> i think it's the fact that the u.s. has not been very robust. it's natural for fedex to see some softening in that. it's just another data point that says asia is generally slow. but if you look at the global economy, the purchasing manager numbers have been relatively stable, so it's a slow but stable environment. asia is probably seeing a bit more softness. >> we also saw key indicators on money in china rise overnight. one of our viewers wrote in and asked, basically, what are the chances of a run on a bank in china and what are the implications? david, do you want to weigh in on that? >> we're talking transports, trade activity, china's economy, manufacturing. i think what's important to
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recognize and why people are sensitive to the pmi rising furth further, i think they're seeing a slowdown in construction activity, and it seems like not just china but u.s. and european activity is very china sensitive. we have an economy right now healing, getting better, particularly because of things like housing, but when we look at global manufacturing, global and u.s. business spending and global trade, it's all very sluggish. it's the reason why earnings are going to be very slow second and third quarter, at least. >> do you agree, barbara? >> i think when we look at the chinese economy, we are of the opinion there are some tentative signs about to bottom out. we're not going to be double growth rates for china, but we'll see economic growth of about 7.4% this year, maybe 7.5, maybe a touch better for 2014. it's either in september or october, the party is going to have a very big summit and a very big meeting. out of that you may see some
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movement toward structural reform for the chinese economy so it starts to kind of hit those trajectory numbers. >> very quickly before we move to some breaking news, is anybody worried here that there is a tremendous housing and real estate bubble in china, that they've overbuilt so much and they're not going to be able to fill all these apartment buildings and office buildings that they built? are we worried about that? >> i know there's that risk. you see the pictures on tv, some of the shows are seeing the oversupply of those things, but there are a lot of chinese people moovrg inving into the c and if they don't have the facilities for them when they move in, they could have problems. >> the government is physically pushing them in. >> right now there are some vacancies, but we don't think it's a long-term problem. >> we'll break in with some breaking news now from julia borshtin about facebook. >> facebook has launched video from instagram.
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they will be 16 seconds long. it also contains new filters to make those videos look as pretty as the instagram photos. you can easily delete one to string them together and to be able to choose your color photo so you can make sure the image your friends see is exactly what you want them to see and not just in the beginning of the video. there were some subtle digs at twitter saying this will be available day one on android and also the videos won't loop. so you'll be able to see a photo, click on it, or hover over it, and it will show the video. this has been long anticipated, and this is really a move from facebook to try to catch up with the popularity of twitter's vine video sharing system, and also to really get into this video space, which is very valuable, considering how valuable video ads are now. so we're going to continue to monitor, but it's really designed to make video as beautiful as those instagram photos thanks to all those filters. tyler, back over to you. >> my kids will be so excited.
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can't wait. at least you can delete them. we have tech stocks to talk about. we'll hear from wall street's best and brightest, and we're going to talk about what they are worried about in washington. that's in the next six months. more power lunch, more power summit, and we're watching the dow as well when we come back. tickets are now on sale for this massive investor summit produced by cnbc. key note address secretary jack beley, carl ichan, nelson pelts and more. for details go to deliveringalpha.com. ♪ ♪
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david bianco is chief executive strategist for deutsch bank. his s&p u.s. target stands at 1625. a quick reminder, we want to hear from you. you can submit your questions to facebook.com/powerlunch. we have a team set up ready to read those questions and get them on the air. now is your chance to talk to
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wall street's best and brightest. >> speaking of some of wall street's best, let's go to bob. they're going to talk about the s&p targets. let's get you up to date with the dow industrial average down about 2.2% on the trading session, and about a 1.7% decline, the nasdaq down 1.66%. there is a lot of tension this morning, bob. we bettered our position a little bit, but it hasn't lasted. >> no, we're essentially near the lows for the day, and we tried to rally just after 11:30 and it's kind of fading a little bit here. it's going back and forth here, but obviously this is going to be a pretty serious down day. let me ask the panel about emerging markets. the number one question i get is
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what should i do with my emerging markets fund. ets has made it easy to invest in emerging markets. some people say it's going to get worse and people should consider getting out, but a lot of other people say volatility is a normal part of investing in emerging markets. 25% is normal. where do you guys stand on emerging markets, and can you tease out the effect of people taking money out and bringing it back to the united states versus what's going on in china? it seems like things are smacking emerging markets around. >> it's emerging market bonds as well. that playbook, put your money in emerging markets worked for a while. the last few weeks it certainly hasn't. >> that was the third of the main mover in the markets during much of the last decade when a lot of people were looking at the dollar going down here and looking for better opportunities over there. we think here over the past year or so, that's not been as profitable to trade. but i think a lot of investors
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are still more biased toward u.s. markets, particularly retail investors we talk with, and should use pull-backs in these emerging markets as an opportunity to balance back towards a more normal strategy. but we're not seeing any encouraging signs that the market is ready -- emerging markets are ready to move up yet, but we think this is a good opportunity. >> do you agree? >> if we're looking at getting exposed to emerging markets, we would rather get the equity premium and own the stocks rather than the bonds and just take the currency risk. we do think there has been a hit because of worry about economic growth, particularly in asia, which is about 60% of the emerging markets. they're now at a 28% discount, the global equity, so i think there is a valuation case to be made. >> barbara, where are you on this, and overall, what is a reasonable percentage for an original investor to have in emerging markets as opposed to global markets? >> well, the emerging markets and the global equity markets really have to be taken a look at on a holistic view. the reason we're favoring the
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u.s. and japan over emerging markets at this point is it's good in the long run. think about the global picture, the u.s. is further along. the emerging markets are continuing to outpace the growth we're seeing in the upcoming markets, but it's at a slower margin. that's why the emerging markets are under continued pressure, because they haven't beat the domestic markets in the last couple years. >> you've been favoring japan. do you still like japan given the volatility weave se've seene last few weeks or so? we're seeing 6 and 7% moves. do you still like them and why? >> we do. we think japan is making a huge effort to really defeat deflati deflation. and while we think there is a shakeout in their currency, we think the path forward in their equity market is still higher from here. >> how does the original investor tap into japan?
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what's the best way to play it? >> the best way to play japan is to make sure to hedge your currency. the currency is likely going to weaken from here. if you're going to own japanese equities, make sure you hedge your current exposure back to dollars. they're also exchange rated funds that are investing in japanese equities but hedge the currency back to the u.s. dollar. >> tom, are you with her on this, that the markets are allegedly along in its recovery and that europe may be second in that and japan is third? >> yeah. i think something that investors don't spend enough time thinking about is really pent-up demand. if you look at the u.s., i think it's in a very special position. we've got great balance sheets with the deleveraging -- >> consumers have really deleveraged. they've cut back a lot. >> yes, and we've got effects coming back from the stock market in housing. it's been almost $11 trillion in two years. then if you look at the stake of
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capital stock, autos, or average age of a house or appliances, or even corporate capital equipment, we're at levels you may not have seen since the '60s. i think there is substantial pent-up demand in the u.s., i think europe is developing into a similar story. >> is it too early to play europe? i know you're a u.s. strategist, but you must have some views. >> if you look at the rate of improvement of the ip numbers or pmis, it's telling us europe looks like it's exiting recession. i think that would mean stocks should out perform the hedge market. >> and they've got smart people on the ground who they sent over there, right, to do some of this investing. >> david, do you agree? >> it's a complicated thing. we prefer he can with it 'tequig
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markets. looking at europe, someone willing to take a risk, and that would include european financials, and for those who don't have that kind of appetite, we would probably say look at the u.s. >> gary, is this time to buy? make the case. this is a buying opportunity. i heard some of you guys saying it when we were on break, that when the dow is down 250 points, and we all say we want this selloff because then that creates the buying opportunity. but barbara, as you were saying, when push comes to shove, there are not a lot of people who say, yeah, i'm buying today. i suppose professionals do more, but make the case. >> it's very interesting how quickly investors have forgotten the long-term picture is improving. you know, we are seeing the pent-up demand that's the strong support for our economy. we are seeing consumers out there buying homes and cars and stuff, rates we haven't seen in a long time. we are seeing consumer confidence start to improve. we're seeing our trade picture,
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particularly our situation with energy, the fact we're producing domestic energy and have less of a trade balance program. even in the budget deficit, we're seeing improvement there. it's been incremental but it's been positive. i think if you think about those long-term factors, you almost have to go back to a period in the 1980s when a lot of those things were coming together at the same time and the dollar started to do better. that was a buying opportunity, and we can't say for sure this is the same, but a lot of the situations look similar, so we do think this is a buying opportunity. >> one thing everybody is watching today is the interest rate outlook. so let's take a look at our bond reports for today's trading session, because that was something that was a worry for the market earlier on. we're going to focus mostly on the 10-year and the 30-year. the yield right now on the 10-year has backed up. that, i think, is close to the high of the day, 2.34%. and the yield on the 30-year bond is 3.52%. so you're up to date on the bond market, but tom, quickly before we go to a break, we were
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talking before lunch and you said this is the second quarter in a row where investors are going to get kind of a rude surprise in their statements if they're still in bond funds. what's going to get them out of the bond fund? >> bonds have treated people really well for the past decade, so it's going to take some losses for a while. but the fact that stocks were up two quarters in a row where bonds were down actually has only happened one other time in the last 40 years, which was '98. and it was predictive of a big move in equity prices. so i think in a way, whether it happens next quarter or two quarters from now, i think there will be a big allocation shift into stocks because stocks are still cheaper than bonds. >> we're going to take a quick break here today. the gentleman and lady with us today are with their firms and they'll talk with us about the rest of 2013. we'll touch on technology when we come back, and that's two minutes away. man: how did i get here? dumb luck? or good decisions?
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credit suisse, chief investment strategist barbara reinhard. >> we'll hear from barbara in just a second, but first we hear from seema. >> while the technology sector is up this year, it's still underperforming the market. tech giant apple, despite its recent comeback, is down 20% from its november highs, and that's weighing on the nasdaq. my question is, will we see a comeback in the technology sector between now and the end of the year, and if so, what will the catalyst be? >> thanks, sema, very much.
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david? >> i move on technology, i move on financials. those are the two most attractive, i think. the concern about technology has been that business spending has been very slow. i don't think it's because of macro reasons, i think it's because there's indecisiveness among companies whether to go to conventional tech spending or cloud tech spending. decisions should be made over the course of the year. spending on the category should pick up late this year and next year, and i think they're just overlooking the share lossage that big cap tech will go under. they will capture a big share of the market. >> there is a lot of money these companies are sitting on, so if they decide to deploy just a percentage of it. >> what i addressed was the top line, especially top line technology. we look at things like their balance sheets, there's plenty
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of room to deleverage. the winners will be the ones that do a good job of transitioning their business model more quickly to cloud based, and we see that in some software names right now. >> so are you talk oracle there? >> i'm referring to big cat software. >> jim, what do you think of technology? is technology the sweet growth spot for this economy in the future? >> we're moderately overweight tech, and it's a view there is going to be an improvement in corporate spending, but technology, more than any other sector, is one where you have to be careful about product cycles and pick the specific subsectors. so we want to focus on the new area such as cloud-based computing, mobility and big data. >> it's surprising, though, isn't it, barbara, that it's underperformed the broader market of the s&p 500 and the dow to a certain extent. in the past that was the sweet spot. but the dynamic has changed a little bit. >> well, don't forget, technology also is concentrated by a handful of names and a very
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big portion of the technology sector. that's why selectivity is so key within that sector in particular. but we're playing the cyclicals through the classic cyclicals, such as consumer discretionary, industrials and just really shying away from tech more broadly. >> does anybody have a quick thought? i know you guys aren't stock pickers per se. does anyone have a quick thought on apple? crickets. nobody wants to jump in on whether they think apple will rebound from its current levels? >> most of the time strategists are not allowed to opine on specific names. >> it's an interesting situation, though, for investors who thought apple was the be-all to end-all for so very long. >> you behave yourself very beautifully. we like you for doing that. >> we're getting into key
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headlines. bank of tokyo mitsubishi has agreed to pay $250 million to new york state for hiding $100 billion of transactions with iran, sudan and myanmar. gold stocks taking a hit today. gold plummetting. it's below the 1300 mark an ounce, and all losing significant ground in today's trading session. the fact that oil fell more than $3 a barrel, exxonmobil, chevron and bp on the down side there. what winds may blow in from capitol hill over the next six months that scare these strategists? find out after the break, and we'll be right back with more of our power summit after this. giu the most free research reports, customizable charts, powerful screening tools, and guaranteed 1-second trades. and at the center of it all
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washington is in the room. taxes, regulation, confusion. where does washington stand in the next few months?
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>> we all know how dysfunctional and gridlocked washington can be, and it's looking more and more likely that we're not going to see much progress this year on tax form legislation. earlier in the year, a lot of folks were optimistic. now it's looking less and less likely. my question is this. how do you play that as an investment strategy if it looks like there's no progress to be made on tax rules later this year? >> that's a fantastic question, because we've seen this market gridlocked by the gridlock in washington. jim, why don't i come to you? what do you think? how do you invest, in essence, almost against what's happening in washington? >> sure. so we've actually come into this period with a view that washington progress has been better than people have been giving them credit for, whether it's on the fiscal front or the political front. there is less fighting between the democrats and republicans and it's a wild sum advancement. we still have split power structures. there is not going to be a legislation passed until at least the midterms. we think that's just fine for
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investing. i don't think the market has much expectation for tax reform. >> really? that's interesting. >> how about fiscal reform. it seems to me that as the fiscal situation has improved, and it has, because government revenues are up, tax revenues are higher, that has taken some of the pressure off of congress, democrats and republicans, to reach some grand bargain on fiscal policy on the deficit. do you guys agree with that or not? >> a couple years ago when our deficit was running almost 10% of gdp, we were pretty much almost if a crisis situation where they needed to do something. it looked like they were dysfunctional. and now that the deficit has come down, the crisis is sort of abating, and, you know, we are seeing some incremental improvement wi improvement. with the economy getting better, we think that will be even better down the road. the fear of this is not as great as it was a year ago, and i think that's really positive. >> we've heard the fed chief talk about coming up with a fiscal remedy. just a short while ago, maria
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bartiromo add mr. boehner about it. >> it's due in large part what we have coming out of the federal reserve. you can't continue to deflate our money, deflate it and deflate it, have the equity markets go up without some change. >> more from maria's interview with john boehner today on "closing bell" at 4:00 p.m. eastern time. we'll throw it out to the panel right now. do you agree with the speaker and his contention that part of the issue that be because of the feds' easy money policy? who wants to take it? >> we would give the fed chairman actually very good marks for how he's dealt with the crisis and getting financial stability back in the system in the economy at the point where it could start to grow on its own. having said that, this pullback is going to test the ability of the economy to continue at its
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2.5% type of growth pace. >> would you like to see him stay? would you like to see bernanke stay? >> i think it's not really that critical, because whoever is going to replace him, which i think is the likely scenario, is going to be very hard to differentiate from a policy standpoint. i don't think it's going to make a major difference. with obama, you were guaranteed a more definite position. >> how much power does the fed really have, and can bernanke keep interest rates artificially low? >> i think the fed plays a huge role, especially in asset markets and they're setting interest rates. the fed has incredible power. i think one of the biggest risks we've viewed over the last four years are the risks of the fed losing credibility. when the fed either loses control of the interest rate or of their communication, that's when markets can get into trouble, and i think the good news is the current fed has
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incredible capability. >> if speaker boehner just said, you can't continue to deflate our money and deflate it and deflate it and have the equity markets go up, i guess i could argue that what the equity market seems to be reacting to here today is that the fed isn't going to continue deflating the money. i mean -- >> well, i think there's two things the equity market is reacting to today. the first is the jump in bond yields. when you have bond yields going that high, it's somewhat unnerving to the equity market. the equity market had been plowing ahead in incrementals, and if there is a feeling that the fed is increasing too fast, that provides some contention. the drag for the growth in the u.s. next year becomes far more favorable. this year you have a fiscal drag
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of about 2% u.s. gdp. next year it's likely to be less than 1% gdp. >> so the head wind becomes less of a head wind and maybe even a tailwind, slightly. >> not a tail wind, per se, because there will still be physical attraction, but less so. >> one of the things our viewers are weighing in on is a plummet in the gold market, and matt from rhode island wrote in and he wants to know whether or not in general the metals will be bottoming soon. that's a difficult question given the trajectory to the downside in the metals market today. who wants to weigh in on whether or not you think this is an opportunity, perhaps, is the best way to say it, to enter into the metals markets in some part of your portfolio. >> they're also something that works when real interest rates are very low. both of those things are going in the wrong direction, so real rates are start to ing to rise.
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both of those aren't good for metal prices. >> so don't get into precious metals right now? >> correct. >> does the world, does the united states seem better from the center of the country, in chicago, healthier economically? what do you say? >> i think it's healthier. we still have concerns about the budget deficit. it's a strong concern out there in the midwest. but generally i think we're seeing the housing market come back, which is helping the consumer market. >> chicago is seeing a very diversified economy, coming back slowly. the real estate market has got pockets of strength but it's not overly robust. >> all right. we really appreciate it. >> the last word. >> the last word. absolutely. this has been such fun. i hope you all come back. we want to thank tom, we want to thank jim, barbara, gary, david, all of you for coming in. we greatly appreciate it and i know you've given our viewers some specific insights into this
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market. >> that's it for "power lunch," everybody. have a great day. "street signs" is up next. >> tickets are now on sale for this massive investors summit produced by cnbc and institutional investor. keynote address from treasury secretary jack lew, u.s. attorney parara. for details go to deliveringalpha.com. [ male announcer ] we've been conditioned to accept less and less in the name of style and sophistication. but to us, less isn't more. more is more. abundant space, available leading-edge technology,
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welcome to "street signs" where we have got a big selloff in stocks and gold, so today it is a special show with our "street signs" gps. all hour we're asking very simple questions like should you sell, should you hold, or should you buy more on weakness? you're asking it with gold and even the housing market. mandy, we'll also hit this interesting stock, is the fed the perfect indicator as to whether you should be buying stocks? >> that's an interesting question. in the meantime, rock and roll,